Analyst: Under Armour Offers 'One Of The Strongest Absolute Return Opportunities'

Under Armour Inc (NYSE: UAA) (NYSE: UA) reported its first-quarter results earlier this week that signaled signs of "early green shoots."

The Analyst

KeyBanc Capital Markets' Edward Yruma maintained an Overweight rating on Under Armour's stock with an unchanged $22 price target.

The Thesis

Under Armour's earnings show "promising signs" in the athletic apparel maker's footwear business, Yruma said in a note. (See the analyst's track record here.)

The commentary surrounding the HOVR connected shoe line was "upbeat" and initial sell-through data offers not only an encouraging long-term opportunity, but a "compelling performance story," the analyst said. 

Under Armour is targeting a 40-percent reduction in SKU count, improved product segmentation and a better supply chain structure, Yruma said. These themes represent a longer-term gross margin improvement potential of at least 200-300 basis points, he said. 

Flattish performance in the North American market was offset by 27-percent growth in Under Armour's international business, Yruma said. The company's international penetration is below some of its global peers, which implies it can grow international sales as a percentage of the total from 24 percent in Q1 to more than 40 percent, he said. 

Under Armour's Q1 print signals growth can accelerate and EBIT margins can double over time, Yruma said. The stock offers investors "one of the strongest absolute return opportunities in our space," he said. 

Price Action

Under Amour's stock closed the week at $17.36 per share.

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